Mass. economic forecast: 'Precarious,' with a chance of slow growth

Wednesday

Nov 17, 2010 at 12:01 AMNov 17, 2010 at 5:22 PM

After riding a “robust” recovery since the recession ended in August 2009, economic and job growth in Massachusetts is expected to slow in the coming months before clearing the final hurdle toward recovery in early 2011, when employment and revenue growth will begin a steady climb upward, economists said.

Matt Murphy/State House News Service

After riding a “robust” recovery since the recession ended in August 2009, economic and job growth in Massachusetts is expected to slow in the coming months before clearing the final hurdle toward recovery in early 2011, when employment and revenue growth will begin a steady climb upward, economists said.

Economists meeting in Boston Wednesday morning projected that Massachusetts would not regain all the jobs lost during the most recent recession until 2013, hampered by the struggling national economy. State tax revenues are not expected to reach and surpass pre-recession levels until fiscal 2013.

Led by Massachusetts, the New England region experienced an economic decline less severe than the rest of the country and a recovery that started sooner and exceeded national averages, but the economic outlook for the state and the region remains "precarious" with employment gains and growth expected to come slowly.

“This slowdown had to occur. We couldn’t continue to grow at the phenomenal rates we were because the national economy has been slow to recover,” said Alan Clayton Matthews, an associate professor of public policy at Northeastern University and the director of the New England Economic Partnership, who delivered the forecast of the Massachusetts economy during the NEEP fall conference at the Federal Reserve Bank on Wednesday.

Clayton-Matthews said the fourth quarter of 2010 will be the weakest in four-year forecast cycle for Massachusetts, and could show negative payroll growth and a reduction in government jobs. He did say, however, that the rebound from the recession will be stronger than the one the state went through in early part of the last decade with an annual economic expansion rate of 1.6 percent, compared with 0.9 percent after the recession of 2001.

Economists predicted Massachusetts and New Hampshire will lead the region in economic growth and employment recovery, but only New Hampshire will add jobs at a clip greater than the national average over the next four years.

Job growth in Massachusetts is projected at 8.2 percent through 2014, below the national average of 9.8 percent but higher than New England rate of 7.3 percent.

The unemployment rate is anticipated to fall to 7.3 percent by 2012, and dip below 6 percent a year later for the first time since 2008.

Clayton-Matthews said employment growth in 2013 and 2014 will be slowed by the aging of the state’s workforce.

NEEP Vice Chairman and Forecast Chair Ross Gittell, a University of New Hampshire professor, said the economic outlook for New England remained "precarious." The forecast calls for the New England economy to grow slowly for another nine to 12 months and then pick up strength.

The overall New England economic growth rate is projected to exceed the national average through 2012, and then dip below the national growth rate. Employment levels are not expected to reach the peak levels from before the 2008 recession in the region until the third quarter of 2013, a quarter later than the country.

State economic growth slowed in the third quarter to a 3.7 percent annualized rate from 6 percent in the first quarter, and is expected to slow further to 3 percent through March 2011.

The forecast is likely to have an impact on the state's consensus revenue projections due out next month as Gov. Deval Patrick and the Legislature prepare to start crafting budgets for fiscal 2012.

Job growth in Massachusetts is projected to accelerate early next year at a rate of 1.1 percent in 2011 growing to 2.4 percent in 2012, according forecasts. Professional and business services are projected to be the fastest growing sectors of the economy, adding jobs at an annual rate of 3.1 percent through 2014. Other sectors expected to exceed the state’s overall growth rate are construction, leisure and hospitality, education and health services, though construction jobs will still be scarcer than pre-recession.

Sectors projected to grow at a slower rate include financial activities, manufacturing, trade transportation and utilities and government.

Overall, personal income in Massachusetts is expected to grow at 3.2 percent a year, and wages and salaries will exceed that of the nation by 20 percent. Virtually stagnant in 2010, the wage and salary growth will be seen starting in 2011.

Strong revenue collections over the first four months of the fiscal year have led to a current revenue surplus of more than $400 million for state budget officials, who are facing increased spending demands on social programs tied to high unemployment.

Clayton-Matthews, however, said that “even strong revenue growth will not solve the state’s budget crisis because the structural deficit is enormous.”

The Massachusetts Taxpayers Foundation has estimated the state’s structural deficit to be $2 billion or more in fiscal 2012, based on the state’s use of “rainy day” funds and federal stimulus dollars to balance the current budget.

Clayton-Matthews, however, suggested that because revenue and spending never fully recovered from the “dot-com” recession in 2001, the actual deficit in terms of spending needed to keep pace with public goods and services provided during the late 1990s is closer to $4 billion.

He said the structural deficit can also be expected to grow in coming years as spending needed to keep pace with increases in education, health care and debt service obligations will grow at 6 percent a year, while revenue growth will lag at 5 percent annually.

With one of the highest per capita revenue capacities in the country, Clayton-Matthews suggested that if the state were to set tax rates and fees at the average of all states it could increase revenue by $5 billion above current levels, based on a New England Public Policy Center study of fiscal 2002 revenue and spending.

Market Place

Community Blogs

Original content available for non-commercial use under a Creative Commons license, except where noted.
Brookline TAB ~ 254 Second Ave., Needham, Massachusetts 02494 ~ Privacy Policy ~ Terms Of Service